What was the main driver of the 300%+ house price rise from the mid 80s to mid 00s

Willman_Rodders

Supply and demand determine prices in a free market.

So if demand outstripes supply then the price will rise - until demand = supply. This is a basic law of economics.

As I see it,there are three distinct features to the property price rises senn lately.
1: the supply and demand for property;
2: the supply and demand of credit; and
3: the price of property.

For many, many decades the demand for property has outstriped the supply of available housing and if credit had been unlimited we would have seen huge increases decades ago.

But credit wasn't unrestricted; while there was a huge demand for credit the supply was restricted by the lenders in the 1950's to 1980's - who used to offer what were seen as sensible maximums: using salary multiples the maximum credit a person could have was easily determined. The effect was that the supply of credit was limited, and as a consequence so too was the 'real' demand for property. (Many people wanted a house of their own - they could just not raise the credit to purchase it)

To digress for a moment. During most of the 20th century the banks had to maintain a % of their liabilites in physical cash - roughly 12%. This meant that they could lend whatever cash they held 8 to 10 times over. If the government wanted to reduce inflation they could increase this % figure. So this physical cash (i.e. notes and coin) restricted how much banks could actually lend.

Then these restrictions upon the Banks were relaxed in the 1980s -2000s. This meant the ratio between bank 'lending' and bank 'cash' no longer mattered. As a consequence the Banks were able to lend more - providing their lending was 'covered' by assets of any type - including property. The supply of credit increased massively as a result, and the standard rules [the banks had previously enforced] were relaxed, and relaxed again, to allow people to borrow more - and for the banks to maximise their profits.

So the multipliers went from 3 x main salary to 3 x main + 1 x 2nd salary. then they increased to 4 x main salary, and so on. As each multiplier increased the supply of available credit increased, but as the property supply was still much the same then the property prices increased (The basic rule of economics).

But this is where the problems came ... for the Banks were not only lending the money to enable their customers to buy the property, but the property - once purchased - was forming a part of the Bank's own security - and thus fuelling still further the amount the banks could lend. So, in effect, as house prices rose because of the increased availability of credit, the banks could increase still further the amount of money available to lend... which meant house prices rose still further. A never ending circle of price increases until the circle is broken.

Increased demand then came for property from landlords looking to get in on the buy-to-let market. These too increased the price of property.

Over the years we have seen young couples take on more and more debt. A couple of posts have referred to why did the 2nd spouse have to work, was it that because women were prepared to work that they increased the house prices? No, not in my experience; affordability [of first time property] went beyond the reach of a single working person and so both spouses of a married couple were forced to work -so that they could get their foot on the ladder. Then, as prices increased further young couples were forced to cohabit to buy a property. Yes, they could have decided not to buy - and so reduced the demand - but to have an effect every young couple would have had to decline to buy. Demand was just so great that to defer buying, in effect, just added to the eventual cost.

So where was the wealth ... As we now know it was artificial; merely a book keeping entry in the Banks balance sheets which showed on the one hand they had assets of so many trillion, and customers borrowing slightly less.

But the circle is now broken... It will take some time to repair.

lostinrates

Willman Rodders, welcome to the debate board.

carolt

increased availability of credit

Hopefully that particular circle will not get repaired.

lostinrates

bo_drinker wrote: »

Didn't girls start a "bottom drawer" before they met a bloke. My parents bought their 1st house for about £2500 in the 70s.

Some very old fashioned girls still do/did. Mostly..in my limited experience, its linens...sheets, table clothes embroidered at school, pieces sewn my your mother, grandmother, great grandmother,...that you'll never use but get out and smile over. Pretty house additions that aren't s necessary...the odd picture frame of a deceased great aunt. A washing machine could well have been more useful. My ''bottom drawer'' is actully in a tin trunk in storage. Don't thinkI've seen it since before I was engaged.:o

ukcarper

baileysbattlebus wrote: »

Most people lived at home until they married - people generally didn't live together - I got married in 1975 - I had just had my 21st birthday and OH had been 21 6 months earlier. My sister married at 21 in 1978.

Don't forget a lot of young people were apprentices (in my neck of the woods anyway) and they didn't come out of that until they were about 21 or 22 - and for most of that time earned peanuts. You couldn't join the police or fire service until you were 21. There were no high paying IT jobs for young people - and they tended to not to earn a lot.

You could get private rentals - but it was usually through word of mouth where we lived - council property was relatively easy to get.

Homeownership at 21 for most of the people I knew was out of the question - they didn't earn the money. Setting up a home was an expensive business then - no Ikea or anything like that. Just getting your furniture could take a couple of years or more.

Credit was tightly regulated and you generally needed a fairly hefty deposit if you bought anything on hp and often a guarantor.

A lot of people didn't have a lot of money to spare or to save through out quite a lot of the 1970's. By 1978 things were a lot better.

If we could have afforded it we could have bought a house where we lived for less than £9k in 1975 by the time we could afford it in 1982 we were looking at £25k and were stretched to pay that - and we were in a cheaper area - West Lothian as opposed to North Tyneside.

The average wage for a normal worker was about £50 per week in 1975 and just over half of that for a woman - and that was for over 21's - neither OH or I were on any where near the average wage in 1975 - and £9k for a house for us just not an option. None of the young people I knew then were on anything remotely resembling £50 per week a lot were on about £30 and us girls on a quite a lot less.

I live in surrey and council houses were hard to get. Meet wife when I was 18 she was seventeen started to save when I finished my apprenticeship, which was only three years. Our only entertainment was a quite drink in the local with a couple of friends and when we moved it we had second-hand furniture no Tele or carpets. Not quite a cardboard box though.

edgex

increased availability of credit

IveSeenTheLight wrote: »

Roll forward 20 years.
That one household now has given birth to 3 new additions to the home owner wannabes / renters.
You've also not considered net migration.
Has property increased sufficiently for that demand?

but then what about all those that are 'adults' now & dont/wont have children?
& what about the likelyhood that we move much more towards a continental style of family life, where children stay at home till much later in life? the assumption that as soon as somone turns 18 they become a householder is already incorrect, & is likely to become ever rarer.

students are more likely to be living in purpose built accommodation as opposed to renting a house - less householders again
after graduation, a lot more are having to move back in with parents, due to the costs of going to uni now - less householders again


net migration - that can be quite short term, as seen recently with many polish people returning to poland as their economy improved, & demand in the uk reduced.





population & number of households is connected, but not in a basic 'if the pop. increases by 10% so do the number of households'

Really2

After reading a lot of the posts since yesterday it is hard to argue there as been a massive cultural shift.
But the only part of the cultural shift that has helped increase HPI is two wage family's and how we now live (divorce single owners etc..), it is only one of the reasons though.
I think because we keep having housing bubbles shows that there is far more than just one thing that causes HPI.
Just the more causes there are the bigger the bubble becomes.

Also I don't think anyone has touched on how an ageing population is also restricting availability.

ukcarper

Really2 wrote: »

After reading a lot of the posts since yesterday it is hard to argue there as been a massive cultural shift.
But the only part of the cultural shift that has helped increase HPI is two wage family's and how we now live (divorce single owners etc..), it is only one of the reasons though.
I think because we keep having housing bubbles shows that there is far more than just one thing that causes HPI.
Just the more causes there are the bigger the bubble becomes.

Also I don't think anyone has touched on how an ageing population is also restricting availability.

I agree otherwise how would the 70s bubble have happend no 3 x joint then

Errata

The UK population has increased by 20% over the last 60 years, most of that increase happened in the 70's, 80's and 90's. House building hasn't happened at the same rate resulting in a scarce resource increasing in price. Plus other variables.

SingleSue

Really2 wrote: »

Correct, people would bring up a family of 2 adults and 2-3 children in a 2 bed house back then.

Would they now? or would they want/expect more?

Housing is more expensive no doubt, but compared to 40 years ago I bet the average family after all expenses (Mortgage, food, clothes etc) is not better or worse off.
could the average family afford 2 cars and a mortgage 40 years ago?
We just enjoy a better standard of living overall. We still all just work to live, not live to work.:)

40 years ago this month, my parents bought their first (and only) house...they were distinctly average.

They already had one child (my brother) and another on the way (me), mum didn't work and the only income was the one my dad brought home.

There was only one car in the household but that was because mum couldn't drive (passed her test in 1976), it was a newish car (from what I remember, a Rover with big leather seats - although that could have been a later car!)

They were comfortable financially.